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Yandle: Economy on roller coaster for first half of 2017

Despite the continued upward movement of the nation’s economy since coming out of the latest recession, economist Bruce Yandle said the past 12 months of growth have been “uneven and slow.”

Yandle, alumni professor of economics emeritus and dean emeritus at Clemson University, said he believes there is still more economic growth ahead, despite recent weak economic expansion.

“I think this post-2008 expansion is not quite done and that 2017 will rack up 2.3% real gross domestic product growth, and that 2018 will do about the same — until we hit 2018’s last quarter,” Yandle said in his latest Economic Situation report.

For the first quarter of 2017, the Commerce Department initially found GDP growth at 0.7% due to low consumer spending and inventory cutbacks, according to the Bureau of Economic Analysis. That estimate was later revised in May to 1.2%.

Yandle said another point of uncertainty is the status of NAFTA. Other outside questions for business owners relate to the status of China, Canada, Mexico and NATO.

He added monthly employment gains have been above 200,000 during the first half of the year and unemployment has been below 5%. In his report, Yandle noted, “when plotted, the number of jobs added monthly on a five-month moving average since 2015 has a pronounced negative slope.”

“In multiple conversations with business leaders, I get the impression they are scraping the bottom of the barrel when trying to find qualified workers,” Yandle said.

Another issue to suggest the economy may reach a plateau, according to Yandle, is bank commercial and industrial loan activity has still grown, but “at a diminished rate.” Additionally, the Federal Reserve’s industrial production index showed negative growth in March. Yandle said combined “the path these data are forming is shaped like a roller coaster approaching the peak when viewed from the ground.”

Yandle said between the maturation of $250 billion in the Fed’s holdings of U.S. Treasury debt in 2018 and mortgage-backed securities maturing in the next 18 months without reinvestment could spell higher interest rates on the horizon.

He said he expects inflation to rise 2.5% – 2.7% by the end of 2017 and an uptick in interest rates. He forecasts 10-year bond yield of 2.6% – 3.1% and “plain vanilla” mortgage rates of 4.3% – 4.6%.

“We should see stronger GDP growth in the year’s remaining quarters, with calmer 2018 activity,” Yandle said. “There’s a lot of turbulence, so keep your seatbelts fastened. I expect we will take a swing downhill in late 2018 or early 2019.”